Credit Score and Bankruptcy Credit Score after Bankruptcy how Bankruptcy Affects Credit Scores

Believe it or not, but declaring bankruptcy can actually help you increase your credit score. It is amazing, but true. When you reach the point in your financial obligations that you default on loans, have overwhelming debts, your credit cards are maxed out and you are unable to meet your payments, then it is quite likely that your credit score is at its lowest point and you have absolutely no borrowing power. So when your debts are wiped out and you have a chance to start fresh, your credit score can only rise. It is possible to raise your credit score so that you can start borrowing again.

When you declare bankruptcy, your outstanding debts are wiped out; although your credit report will state that you have a bankruptcy against you. You shouldn’t expect to see a big rise all of a sudden. It is only natural that you will have to start from scratch. One way to do this is to get a prepaid credit card from your bank. You load the card with funds and then you use it the same way as you do with a credit card. The only difference is that you won’t have a bill arriving in the mail at the end of the month.

The credit reporting agencies also use what is called the FICO score in determining a consumer’s credit rating. They compare your credit rating with that of others in the same financial position that you are in. There are ten different groups for this rating and one of these groups is specifically for those who have filed for bankruptcy. If you are in a better position than others in the same situation, you will obviously have a better credit score.

Ways that you can make sure your credit score starts to rise after declaring bankruptcy include:
– Make sure that all the debts wiped clean through the bankruptcy are listed and show the outstanding balance as $0. If not any debts you omit will still be listed as outstanding and delinquent.
– Get a new credit card as soon as you can. It is possible to obtain a credit card with a very low limit. Then when you use the card and pay off the balance at the end of the month or make sure that you make your payments on time, this shows up as a positive item on your credit report.
– If you own property, you can take out a secured loan. The lender then has collateral so if you should default on the loan, the lender can foreclose and you will lose your property. This type of loan has a lower rate of interest than an unsecured loan.
– If you do not own property you can use as collateral, then you can take out a small unsecured loan in the form of a bad credit loan. You will pay a higher rate of interest because of the increased risk to the lender, but regular, on-time payments will enable you to raise your credit score.

There is life after bankruptcy. If you have been spending a long period of time trying to avoid bill collectors and now have all your debts wiped clean through bankruptcy, you have a better outlook on life and can start living again.